Quiz 10 - Chapter 13

Question:

Required information [The following information applies to the questions displayed below.] Cardinal Company is considering a five-year project that would require a $2,915,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 16%. The project would provide net operating income in each of five years as follows: Sales $2, 863, 000 Variable expenses 1, 014, 000 Contribution margin 1, 849, 000 Fixed expenses : Advertising, salaries, and other out-of-pocket costs $ 781,000 Depreciation 583 , 000 Total fixed expenses 1,364, 000 Net operating income $ 485 , 000 (Hint: Use Microsoft Excel to calculate the discount factor(s).) Required: 1. Which item(s) in the income statement shown above will not affect cash flows? Sales Variable expenses Advertising, salaries, and other fixed out-of-pocket costs expenses Depreciation expense 2-a. What are the project's annual net cash inflows? Annual net cash inflow 2-b. What is the present value of the project's annual net cash inflows? (Round discount factor to 5 decimal places) Present value 3. What is the project's net present value? (Round discount factor(s) to 3 decimal places and final answer to the nearest whole dollar amount.) Net present value4. What is the project profitability Index for this project? {Round discount factorls) to 3 decimal places and final answer to 2 decimal places} 5. What is the project's internal rate of return? (Round your answer to nearest whole percent.) _:IE 6. What is the project's payback period? {Round your answer to 2 decimal places.) - years 7. What is the project's simple rate of return for each of the five years? {Round your answer to 2 decimal places. i.e. 0.12342 should be considered as 12.34%.) 12. Assume a post-audit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio. whlch actually turned out to be 45%. What was the project's actual net present value? [Negative amount should be indicated by a minus sign. Round discount factor{s) to 3 decimal places, intermediate calculations and final answer to the nearest whole dollar amount.) _:I 13. Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio, which actually turned out to be 45%. What was the project's actual payback period? (Round your answer to 2 decimal places.) _- 14. Assume a post-audit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio, which actually turned out to be 45%. What was the project's actual simple rate of return? [Round your answer to 2 decimal places. i.e. 0.12342 should be considered as 12.34%.)